Understanding credit card preapproval and denial

Quick insights

• Credit card preapproval is an initial evaluation that means a lender has preliminarily checked your credit and thinks you might qualify for a credit card, but it is not a guarantee of approval.
• Approval can depend on a more thorough review of your credit history, income verification and other financial factors.
• Changes in your financial situation or new negative marks on your credit report between preapproval and application can lead to denial.

Being preapproved for a credit card can be an important first step in the credit card approval process, but it doesn’t necessarily mean you will ultimately be approved for the card.

Why preapproved applications might still be denied

Credit card preapproval is a preliminary evaluation by a credit card issuer to determine whether you’re likely to be approved for a specific credit card. During this process, the issuer conducts a soft inquiry into your credit history, which does not affect your credit score, before offering you one or more tailored credit card options.

Lenders perform a more detailed credit check during the final application process, which can uncover financial changes or errors not apparent during preapproval. Issues like a drop in your credit score, increased debt levels, new hard inquiries or opening new lines of credit, late payments or bankruptcies could each influence a denial decision.

Inaccuracies in the preapproval information or the discovery of incomplete or outdated information during the final check might result in a denial. Economic shifts or changes in the lender's risk strategy may also lead to stricter credit approval criteria, affecting even preapproved candidates.

Steps you can take after a denial

Being denied for a new credit card can be disappointing, but there are some steps you can take to potentially improve your chances of approval in the future:

• Review: Review the adverse action notice provided by the lender to understand specific reasons for the denial. When your credit card application is denied, the lender sends a letter explaining the factor(s) that led to their decision. You might also wish to check your credit report for any errors or discrepancies that could have influenced the lender's decision, and dispute them if necessary.
• Improve: You might consider trying to improve your creditworthiness by addressing any issues listed in the adverse action notice, or any other common credit issues, including the following:
  • Debt-to-income ratio: One of the most impactful factors in determining your eligibility for a new line of credit is your current debt-to-income ratio. If the size of your monthly debts account for more than one third of your monthly income, you might be less likely to be approved for a credit card than someone with a lower debt-to-income ratio.
  • Credit utilization ratio: Another factor in determining eligibility for new credit is your credit utilization ratio. If you are currently using a high percentage of your total available credit, you might be less likely to be approved for a new card than someone with a more favorable credit utilization ratio.
  • Negative credit history: If your credit history contains one or more negative incidents, like late or missed payments or bankruptcy, this could impact a lender’s decision on whether to approve your application for a new line of credit. Consider building up your history of on-time payments to help improve your credit.
  • Age of applicant or their credit: If you are under the age of 21 and/or have little to no credit history, you might be less likely to be approved for a credit card than applicants who have more established credit histories. If this was listed as one of the reasons for your denial, you might want to consider becoming an authorized user on a parent or trusted family member’s credit card, which could build up your credit history and potentially impact your credit score if information is reported to the credit bureaus.
  • New credit applications: If you opened several new credit card accounts recently, you might be less likely to be approved for a new credit card than an applicant with more established credit accounts.
• Investigate and try again: If you’re denied one credit card, it might be worth looking into other credit card options available. Evaluate credit cards that cater to your specific financial situation, such as cards with lower eligibility requirements, those designed for rebuilding credit or those that offer prequalification without a hard credit pull.

Benefits of choosing a suitable credit card

Selecting a credit card that matches your financial profile may help you avoid future denials. Proper use of an appropriate credit card can help build your credit score, which could make you eligible for better credit offers in the future. Some credit cards offer features like credit score tracking and financial education resources that can aid in your financial literacy and credit management.

The bottom line

While preapproval for a credit card can be viewed as a preliminary thumbs-up, it does not guarantee an approval. Understanding the factors that can lead to denial after preapproval can help you prepare and potentially avoid those pitfalls. By taking proactive steps to improve your credit health and choosing the right credit card for your needs, you may be able to better set yourself up for success.